• The World Trade Organization Rules Against China In Raw Materials Dispute; Ruling Could Serve As Precedent For WTO Challenge Against China On Rare Earth Materials
  • August 5, 2011 | Authors: Gilbert B. Kaplan; Jeffrey M. Telep; Taryn Koball Williams; Bruce Wilson
  • Law Firm: King & Spalding LLP - Washington Office
  • On July 5, a World Trade Organization dispute settlement panel issued its public findings in response to complaints brought by the United States, the European Union, and Mexico against Chinese export restraints on certain raw materials. The panel found in favor of the complainants on most issues and rejected several defenses raised by China to justify its measures. China has until September 4 to appeal the panel's report to the WTO appellate body.

    The dispute concerned four types of export restraints that China imposes on the export of various forms of bauxite, coke, fluorspar, magnesium, manganese, silicon carbide, silicon metal, yellow phosphorus and zinc. China is a leading producer of each of these raw materials, which are used to produce everyday items.

    The complainants alleged that the export duties and other export restrictions in question violated various provisions of the 1994 General Agreement on Trade and Tariffs as well as certain commitments undertaken by China in its Protocol of Accession to the WTO. Among these commitments was a pledge to eliminate all export duties except for certain products specifically listed in China's Protocol of Accession. China also committed not to apply export quotas.

    In ruling in favor of the complainants and rejecting China's defenses, the Panel found that China's actions were inconsistent with WTO rules and that it had failed to fulfill the conditions required to permit export duties and other restrictions. For example, China argued that some of its export duties and quotas were justified because of the need to conserve certain exhaustible natural resources. However, China was unable to demonstrate, as is required under WTO law, that it imposed these restrictions in conjunction with restrictions on domestic production or consumption of the raw materials so as to conserve the raw materials in question. For some of the raw materials, China claimed that its export quotas and duties were necessary for the protection of the health of its citizens, but was unable to demonstrate to the Panel's satisfaction that its export duties and quotas would lead to a reduction of pollution.

    This case is being closely watched by governments around the world as it could provide a useful precedent for possible WTO challenges in the future against Chinese export restraints on rare earth minerals. Rare earth materials are 17 minerals used in high-tech manufacturing items including wind turbines, cell phones, and complex weapons systems. China provides 95 percent of the global supply of rare earth minerals and has been recently restraining exports of these minerals.